Responding to signs of regulatory voids that the housing
downturn has laid bare, the Consumer Financial Protection Bureau
(CFPB) is putting together regulations geared to providing better
protection for consumers in the mortgage market.
While the CFPB -- a regulatory body set up in the aftermath of
the crisis to provide better consumer protection -- has proposed a
multitude of changes on everything from credit card fees to student
loans, we're going to concentrate on three current proposals that
could change the way you get a mortgage.
No. 1: Rules for servicer accountability
The CFPB has
proposed two sets of rules
that seek to improve the transparency of costs and customer
service.
"These proposed rules would offer consumers basic protections
and put the 'service' back into mortgage servicing," said Richard
Cordray, director of the CFPB, in a recent press release. "The goal
is to prevent mortgage servicers from giving their customers
unwelcome surprises and runarounds."
"The proposal is an effort to truly formalize a level of service
and transparency that had not previously been codified," says
Michael Waldron, a partner with the Washington, D.C., law firm
Ballard Spahr's mortgage banking group.
Here is the CFPB's first set of proposed rules:
- Provide consumers with clear and easy-to-read monthly
mortgage statements
- Adjustable-rate customers must be warned of pending
interest-rate adjustments and informed on how the adjustment will
impact their monthly payment
- Before "forced-based" insurance is applied, servicers must
notify customers of
inadequate insurance
and provide pricing options
- Servicers will be asked to "make good faith efforts" to
contact delinquent borrowers to discuss their options to avoid
foreclosure
While the CFPB's first set of rules are more procedural changes,
the second set of proposed rules are described as "common-sense
requirements" for servicers:
- Payments would be credited on the date a payment is
received
- Maintain clear, accurate and accessible documents
- Errors must be corrected quickly
- Provide delinquent borrowers with direct access to personnel
who specialize in foreclosure assistance
- Servicers must reach out to struggling homeowners and provide
them with options to avoid foreclosure. Servicers must review
loan modification
applications closely, notifying borrowers of any errors or
inaccuracies, and cannot foreclose if the application is not
complete
"The very explicit ban on moving to a foreclosure sale before
all opportunities for a borrower to get any modification have been
exhausted is huge," says Barry Zigas, director of housing policy
with the Consumer Federation of America, a consumer-advocacy
organization in Washington, D.C.
"At the end of the day, the overarching theme is the same, and
that is to make certain that the industry at every turn is making
it as easy as possible, as digestible as possible, as uniform as
possible, to keep folks in their home when it is appropriate," says
Waldron.
No. 2: No-point, no-fee option
Since it's often difficult for consumers to compare loans with
different interest rates, points and fees, the CFPB has proposed a
rule that requires lenders to make a
no-point, no-fee loan option
available to borrowers who qualify.
The proposed loan option will help consumers better compare
different loan offerings from competing mortgage lenders and also
decide if they find it worthwhile to pay upfront points and fees in
order to reduce their monthly payments. The proposal also seeks to
ensure that the consumer receives a legitimate benefit when paying
any upfront points and fees.
Richard Andreano Jr., also a partner with Ballard Spahr's
mortgage banking group, is concerned that the consumer may
ultimately have less choice as a result of this proposal.
"Effectively, they may limit loan products that lenders offer if
they have to constrain it to offer no-points, no fees, particularly
if a lender is operating in a higher-cost area where the cost of
their operations are higher," he says.
No. 3: Copy of appraisal report
Finally, the CFPB has proposed an appraisal-related rule that
calls for lenders to inform prospective homebuyers of their right
to receive a free copy of the home-appraisal reports within three
days of applying for a mortgage. Also, the lender will have to make
a copy of the appraisal reports available to the buyer at least
three days before closing.
"When looking to buy a home or refinance a mortgage, consumers
need the best available facts and data," said Cordray in a recent
press release. "This rule would guarantee consumers receive
important disclosures on how a lender determines the value of the
home, making it easier for loan applicants to make informed
decisions."
Open for comment
Consumers have until Oct. 9 to comment on the proposed rules.
The CFPB will review comments and finalize the rules in January
2013.